Your Company: To Sell or Not to Sell
Published by Mark Heitner in Medium Sized, 6 months 1 week 1 day 12 hours 9 minutes 15 seconds ago
Personal events involving the owners or senior management are what usually raise the question: is it time to sell the company. For the most part, the decision to sell is made for personal reasons. We discuss the most common reasons for a sale and goals of a sale below.
1) Fatigue: the owner-CEO wears several hats. After many years, some parts of the job remain enjoyable, but others are a burden. Many CEOs would like to stay active in the business, but want to devote energy only to the tasks that are in his or her "sweet spot". One solution is to bring in a co-owner/senior manager who will one day assume complete control of the company.
2) Illness: both acute and chronic, progressive illness impact a CEO's motivation and ability.
3) Pressure from spouse: the owner's or CEO's spouse may push the owner to move on to the next phase of life. Or a divorce may require liquidation of the owner's holdings. Pressure from heirs: Heirs, whether they intend to assume management of the firm or not, may be eager to enjoy a liquidity event. Heirs may have expressed disinterest in assuming management positions in the firm. Succession planning within the family may not be an option.
Pressure from other owners: often middle market companies have multiple owners. A number of them might like their stake liquidated, before or along with the majority owner.
4) Retirement planning: the owner may be ready to start retirement. Likewise, the non-owner CEO may be ready to retire, and the owner may not relish the job of hiring and training a replacement.
5) Business opportunity: owners may see other more lucrative business opportunities in other fields, and may need to liquidate their holding sot raise funding for the next company. Owners may wants capital to expand: owners may be interested in expanding the business, and are most interested in equity financing than in debt financing. There is a range of buyers for each of these scenarios. Financial buyers, for example, will insist that senior management stay for a period of one - three years to help facilitate the transition. This is not an empty consulting role, but a meaningful management role. Other buyers will want to buy the company with the expectation that senior management will be largely replaced. Some buyers desire a minority position, others a majority, while others want 100% of the assets.
The critical factor in closing these transactions is for owners to be clear about their actual goals in selling or recapitalizing. Nothing frustrates buyers more completely than a seller who isn't sure what he or she actually wants. As the middle market becomes more efficient, more buyers will be interested in acquiring your company. Besides valuation, the most sensitive deal term will involve the future roles that current management might play. All the more reason to have this issue well thought about before listing the company for sale.
1) Fatigue: the owner-CEO wears several hats. After many years, some parts of the job remain enjoyable, but others are a burden. Many CEOs would like to stay active in the business, but want to devote energy only to the tasks that are in his or her "sweet spot". One solution is to bring in a co-owner/senior manager who will one day assume complete control of the company.
2) Illness: both acute and chronic, progressive illness impact a CEO's motivation and ability.
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3) Pressure from spouse: the owner's or CEO's spouse may push the owner to move on to the next phase of life. Or a divorce may require liquidation of the owner's holdings. Pressure from heirs: Heirs, whether they intend to assume management of the firm or not, may be eager to enjoy a liquidity event. Heirs may have expressed disinterest in assuming management positions in the firm. Succession planning within the family may not be an option.
Pressure from other owners: often middle market companies have multiple owners. A number of them might like their stake liquidated, before or along with the majority owner.
4) Retirement planning: the owner may be ready to start retirement. Likewise, the non-owner CEO may be ready to retire, and the owner may not relish the job of hiring and training a replacement.
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5) Business opportunity: owners may see other more lucrative business opportunities in other fields, and may need to liquidate their holding sot raise funding for the next company. Owners may wants capital to expand: owners may be interested in expanding the business, and are most interested in equity financing than in debt financing. There is a range of buyers for each of these scenarios. Financial buyers, for example, will insist that senior management stay for a period of one - three years to help facilitate the transition. This is not an empty consulting role, but a meaningful management role. Other buyers will want to buy the company with the expectation that senior management will be largely replaced. Some buyers desire a minority position, others a majority, while others want 100% of the assets.
The critical factor in closing these transactions is for owners to be clear about their actual goals in selling or recapitalizing. Nothing frustrates buyers more completely than a seller who isn't sure what he or she actually wants. As the middle market becomes more efficient, more buyers will be interested in acquiring your company. Besides valuation, the most sensitive deal term will involve the future roles that current management might play. All the more reason to have this issue well thought about before listing the company for sale.
About Mark Heitner
Mark Heitner, MD, MBA, the founder of MidMEx, is a psychiatrist, author and software developer. Many patients have been owners of mid-sized companies with a business for sale. MidMEx helps sellers by creating a supportive community of verified buyers and expert business appraisers, brokers and attorneys. Many resources are available to help owners sell the business.
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